India to reverse steps but keep control on sugar

India is considering rolling back some measures taken last year to handle a severe sugar shortage, but the authorities will keep tight control on the sector, two government officials said on Wednesday.

India is considering rolling back some measures taken last year to handle a severe sugar shortage, but the authorities will keep tight control on the sector, two government officials said on Wednesday.

"When you talk of easing control, the only step we are going to take immediately is to ease stock limit for bulk consumers," said one official, who did not wish to be identified.

He was responding to a report in the Business Standard newspaper that said the Commission for Agricultural Costs and Prices, a government panel, had favoured easing control on the sector.

"We have no such plans now," said the official, who is involved with food policies.

India tightly controls the quantity of sugar each mill can sell in the open market every month, buys 10-20 percent of total output at low state-set rates, and fixes the price mills must pay to cane farmers.

The country, with more than 1.2 billion people, is the world's largest consumer of sugar and the commodity is a sensitive issue that can potentially rock governments.

Domestic sugar prices had doubled in 2009, contributing to high double-digit food inflation. Although prices have fallen 31 percent this year, the government still faces protests and is reluctant to lift controls, at least for the time being.

"Do not expect major policy overhauls as prices are a major concern," said another official, who is directly involved in policy decisions.

He said the government might take a view on the long-standing demand of the industry for decontrol in October when the new season begins.

Leading producer bodies like the Indian Sugar Mills Association and the National Cooperative Federation of Sugar Factories Ltd (NCFSF) have repeatedly been asking the government to ease controls.

"The sugar sector must be decontrolled as production is looking up this year and next year," said Vinay Kumar, managing director of NCFSF.

India's sugar output in 2010/11 is expected to jump to 23-24 million tonnes from an estimated 18.5 million tonnes in the current year to September. Last year, output had plunged 44 percent to 14.7 million tonnes.

The country last considered some government allies who said the move would push up prices stonewalled removing some of the restrictions in July 2008 but the proposal.

Widely watched wholesale price inflation in March touched a 17-month-high of 9.9 percent, prompting the central bank to raise interest rates in April.

Government sources on Tuesday told Reuters the country would ease the stock holding limit for large sugar consumers from May 20 by allowing bulk users to stock the sweetener for 15 days of their consumption.